The SEC said a Morgan Stanley analyst showed Whitman a rosy report of EBay stock — and then released it — to court her business. The bank agreed to a settlement but admitted no wrongdoing.

Reporting from Sacramento — — When the Securities and Exchange Commission accused Wall Street firms of putting investors at risk by issuing rosy reports on the stock of companies the firms were courting for banking business, the regulators cited as part of their case a meeting involving Meg Whitman.

After the firm Morgan Stanley lost a bid to handle the 1998 initial offering of stock for EBay, where Whitman was chief executive, the bank's star technology analyst embarked on what regulators called a market-deceiving strategy to win Whitman's future business — which Morgan eventually did.

A civil suit filed by the SEC against the bank describes a meeting between Whitman and the Morgan analyst at which the analyst showed Whitman, who is now running for governor, a draft report rating EBay stock as one that would "outperform" the market.

The federal complaint alleged that the analyst took the unusual step of releasing the report to investors on the first day that EBay went public, something firms that already had EBay business could not legally do because they were subject to a 25-day "quiet" period.

EBay later awarded two banking transactions to Morgan Stanley "with total fees of approximately $13.8 million," the complaint alleged.

Some experts say Whitman should have walked away from Morgan instead.

"When a draft of a research report like that is revealed, it is being done with an understanding of what the analyst hopes to get out of it," said Mercer Bullard, a law professor at the University of Mississippi and former SEC attorney who was not involved in the case. "There are no fools in this arrangement. Everyone knows what is going on, and it is clearly unethical."

The day the lawsuit was filed, Morgan Stanley agreed to a settlement costing the firm $125 million. The bank admitted no wrongdoing but agreed to change its practices.

Asked whether the meeting between Whitman and the Morgan analyst was appropriate, Whitman spokesman Tucker Bounds said, "Analysts who rated EBay as 'outperform' in 1998 got it right because they saw the potential of EBay under Meg's leadership. To suggest that any analyst report by itself created value is ludicrous."